Category Archives: Property Management
Buyers looking to purchase an investment property to rent out often have difficulty determining the accurate rental price. There are many factors to consider and if you don’t assess your property value correctly you could end up over- or undercharging and neither are a situation you want to be in.
Initial rental price calculations
The accepted calculation standard for a long time has been to charge up to 1.1% of the property’s value in relative terms. Take note that as the property’s value increases the percentage of rental yield decreases because of the low demand for rental in high value properties. In some cases rental price go as low as the .7% mark.
A lot of other variables need to be taken into account, with one of the most important external factors influencing rental price being the location of the property. Suburb, sea views, amenities, schools, business districts, transport routes all play a major part in the demand for a rental property and often we will see homes of equal value and characteristics several kilometres apart charging completely different rental prices due to their location factors. Another key variable is supply and demand and depending on the current trend this will have a definite effect on your rental price.
Once you’ve assessed the advantageous features of your property you need to research property comparisons in your area to get an idea of what the local standards are. Browse listings of estate agents or property portals and locate properties of similar value and features. In addition give the local estate agent a call, if they’re worth their salt they’ll be able to assist you and give you a great idea of what rental income you can expect. Consider every little detail.
Internal factors need to be assessed in conjunction with elements out of your hands, such as the condition of your property. In this instance you need to be very honest with yourself and identify any issues a tenant might have; cracks in the wall, paint peeling, cupboard space, kitchen size etc. You have to view your property through the eyes of somebody wanting to walk in and call your place home.
Do you cover water and electricity?
Calculate your bond repayments, levies and other expenses and compare them to a realistic rental income, this way you can determine what you can afford as well as decide whether you should let the tenant pay for water and electricity or if you’re able to absorb some of the costs to make the property more appealing.
Once you’ve evaluated all these guidelines and determined a price, gauge the ad response and demand for the property to assess whether your rental expectations are too high or too low. Demand is a great indicator of your property’s value as many tenants are knowledgeable of what realistic rent prices are. If the ad response is very bad, and you’ve ticked all the necessary marketing boxes, then maybe you’ve overestimated the rental price. Reassess and adjust your rental expectation slightly lower and then see what the response is. If on the other hand you get a huge response and are inundated with enquiries you can afford to push the price a little higher.
Your local Harcourts agent can help clarify rental pricing
In conclusion, all of these guidelines are only a drop in the ocean in comparison to the knowledge worthy estate agents have and it is undoubtedly still the best option, to find a local estate agent to assist you in managing your property. They will not only accurately measure your rental income but ensure all the legalities are followed and tenants are managed professionally and lawfully.
This article originally appeared on the Harcourts South Africa website: How to determine the rental price of your investment property.
Without tenants our investment properties start to lose their income potential and become another outgoing cost, but sometimes troublesome tenants can be more costly than a potential vacancy. So what can you do to ensure any early issues that arise with your tenants don’t turn into a major headache down the road?
Here are some steps you can take before troublesome tenants become unmanageable.
Speak with your property manager early
If your investment property is being managed by a property manager, then chances are they are the ones that have identified the issue. Once identified it’s best to try and resolve the problem early before the matter escalates. Depending on the type of problem, your property manager will be able to guide you on your options but will need you to make final decisions.
For example, if during a routine inspection, minor property damage is found at the fault of your tenant, your property manager will notify you and will also notify your tenants, asking them to rectify the issue at their cost in a specific timeframe.
In cases where the damage is not rectified, your property manager will follow-up with the tenants on your behalf and if need be will guide you through the process of making a claim to have the cost reimbursed from the tenant’s bond, which is why it’s important to have the matter discussed as soon as possible as there are timeframes around this.
Note, the latter process has strict rules around it and it’s best to have a chat with your property manager or receive expert guidance on how to proceed.
Make sure everyone understands their obligations when it comes to rent
As a landlord, you have entered into a legal contract with your tenant to exchange accommodation in return for payment.
Make sure you’re clear that rent must be paid in full and when it’s to be paid i.e. make sure your tenant knows you won’t accept partial payments. If your property is being property managed, your property manager will make this clear to the tenant from the outset, in writing.
When it comes to rent that has fallen into arrears, there are things to consider before starting formal proceedings, again your property manager will guide you through this process and handle communication on your behalf.
Make sure you are getting regular property condition reports
Property managers know the ins and outs of property condition reporting and can perform these or organise to have them performed on your behalf.
Property condition reports protect you from potential conflict with your tenants down the track by ensuring photos, and detailed descriptions are taken for the property at the start of a lease agreement. This means if any damage is found when the tenant moves on, you’re both protected by a condition report which can easily prove if the damage was existing or not.
Be prepared if a dispute does escalate
If an issue can’t be resolved, a property manager can appear on your behalf to provide evidence and handle complaints which are referred to an administrative tribunal.
Property managers are required to keep detailed records of an agreement, inspections and even conversations, all of which are helpful when disputes escalate. If you are managing your investment property yourself, it’s also a good idea to ensure you keep track of notes made during inspections and conversations.
By Landon Miller of Harcourts Premier Properties, California USA
If you’re like many other property owners, you likely cringe when you get your property tax assessment in the mail. But as annoying as it may be to have to open your wallet to pay these pesky taxes, they do actually serve an important purpose.
You’re not just throwing money at Uncle Sam; instead, you’re contributing to the greater good of your neighborhood and surrounding communities.
So, what exactly does your property tax money cover?
Your property taxes go toward a few different things, not just one. Public schools depend on tax dollars to be developed and to remain in operation.
This component of property taxes is typically the biggest item on just about every property tax bill; in fact, it generally accounts for more than half of it. And in areas with a large student demographic or top-rated schools, this number can be even higher. You can bet that along with highly-appraised schools come higher property values.
While public schools get plenty of their funds from the government, the biggest supply typically comes from local homeowners in the area.
Local Public Safety Departments
A big part of your tax dollars go towards paying public safety officers, including uniformed police, 9-1-1 support personnel, firefighters, paramedics, and anyone else involved in keeping the public safe. Property tax money also covers the costs associated with keeping these individuals working and on the road, including police and fire stations, and vehicles and trucks.
If any additional personnel need to be hired, or if any more cars or stations need to be added, city and municipal governments will typically have to hike property taxes to make it happen.
Public Roads and Parks
Nobody likes to drive on roads full of potholes or stroll through parks full of debris and overgrown weeds. The municipal government hires people to take care of roads, sidewalks and parks, and it’s the homeowners that flip the bill through property taxes. Such maintenance includes traffic light repairs, paving roads, filling potholes, removing snow, and other improvements.
Municipal and County-Level Operations
In order for municipalities and counties to be able to carry out their day-to-day operations, they need money. And the majority of that funding comes from property tax revenues. How the money is split up between the municipality and county is often apparent, but in many other cases, it’s not.
In some areas, money may be fully collected by one entity, then divided appropriately. For instance, you might pay your municipality for allocations on one single bill, after which the apportioned money is then sent over to the county.
How Are Property Taxes Calculated?
The amount that you pay towards your property taxes will depend on the market value of your home, as well as the pre-determined assessment rate. This rate is a percentage that will vary from one jurisdiction to another. In order to come up with your property tax obligation, the value of your property is multiplied by the assessment rate.
Whether you pay these taxes directly to the tax department or pay them through your mortgage lender, you’ll get a copy of the bill at least once each year. Make sure you take them time to look over the bill and see exactly how the money is allocated so you can get a good idea of where your hard-earned dollar is going.
Municipalities, counties, and school districts depend on property taxes to support their budgets. Without adequate funds, there wouldn’t be enough money in the pot to take care of the schools, streets, parks, and public safety officers. The more money a local government needs, the higher your property tax bill will go to meet the demands.
When it comes to buying investment property, is rental yield the iron-clad indicator you can take to the bank? Or is it another statistic that can mislead or misrepresent the potential of a property?
If you’re looking for investment property, consider rental yield as one tool in your kit, albeit an important tool. It indicates the possible annual return on investment, over time, in comparison to the purchase price.
Rental yield is calculated thus:
Weekly rent x 52
Purchase price of property
Typically, weekly rent is around .1% of the purchase property, so the yield on a typical investment property is calculated thus:
$400 x 52
——————— = 5.2%
Because it doesn’t include a host of other variables, such as cost of repairs, depreciation, insurance, property management, and rates, investors should not look to yield to determine whether a property will be either positively or negatively geared. This can only be achieved through developing a cash flow projection.
Neither does the yield figure indicate or factor in possible capital growth. In fact, on many occasions, a property with high yield will be likely to offer low capital growth overtime and visa-versa (although there are exceptions).
For example, many investment properties in Australian mining areas are currently offering yields of over 8%, however the prospect of long-term capital gain – which what ultimately investors are seeking – is slim.
On the way to choosing an investment property, a high yield is important, but not to be used in isolation when making the decision.
The Holy Grail when it comes to investment property is a high yield dwelling in an area that promises capital gains. Throw in low maintenance costs and a great Property Manager and you have the full package!
There is no sugarcoating the fact that if you are a low-income earner, buying investment property will require a lot of discipline and sacrifice.
There are a number of challenges to overcome, but although income level is a factor when it comes to borrowing money for investment, there are a lot of other aspects at play, many within your control.
Investing in property remains one of the most effective ways for those on average or lower-than-average fixed incomes to build wealth, so there is every reason to research and dare to dream.
With discipline and planning, those earning a relatively low income can position themselves as a candidate to qualify for an investment loan by paying attention to their credit rating, saving for a deposit and searching for the right investment property.
In a nutshell, your credit rating is about how you demonstrate a healthy degree of financial discipline over a number of years.
Today, all major lenders have access to virtually everyone’s credit history, and although each apply slightly different criteria, most will consider the following factors:
- Stability of employment history
- Regularity of deposits into savings or transaction accounts
- Level of existing liabilities or debts, including credit cards
- Paying bills on time and in full.
The better you perform in these areas over an extended time, the more likely you are to qualify for a loan.
Saving for a deposit
It’s easy to say; harder to achieve, but saving 5-10% of the property value for your deposit will increase your level of suitability to the lender. The act of saving a deposit also proves to the lender that you have the discipline to service a loan.
To avoid paying lenders’ mortgage insurance (LMI), an investor typically needs 20% deposit, plus enough money to cover up-front costs of stamp duty, legal fees and other government charges.
If the prospect of saving a 20% deposit is inconceivable, you can consider other methods to avoid LMI (which usually costs between .5 and 1% of the loan amount), such as approaching a family of friend to be a guarantor to help you complete the deposit.
Guarantee loans allows another person, usually a family member, to use the equity in their own home as additional security for a portion of your loan amount, and are available from several banks and lenders.
Type of investment property
By finding the right type of property, an investor can also increase their chances of qualifying for a loan. Lenders are more likely to lend money on a property located in an area of predicted capital growth, good buyer sentiment and demand, showing higher than average rental yield, and of course, at a good price.
The good news is that the lender will also take estimated rental income that would be generated from the investment property into account when estimating your borrowing capacity. If the property has a relatively high yield, such as 3-5%, then this boosts your ability to service the loan.
If you’re investing in property to generate wealth, you should consult a range of professionals including an accountant, financial planner, a local mortgage broker and agents.
Low-income earners face a daunting task when it comes to entering the investment property arena, but every long journey began with taking the first step, and many of reached their goals.